Renowned hedge fund manager David Einhorn just reported his third quarter portfolio. Einhorn made him fame with a few high profiled shorts that worked out nicely for him. Most recently he shorted Chipotle Mexican Grill and Green Mountain Coffee Roasters. When the news broke out, both stocks were hammered. This is the third quarter portfolio of David Einhorn. He bought into new positions in Computer Sciences Corporation, Yahoo, Babcock & Wilcox Co, and Aecom Technology. He also added to his positions in HMOS such as Aetna Inc, Cigna Corp. Among his sales, the most notable ones are Apple (AAPL) and Best Buy (BBY) He reduced his position in Apple by 25%, although it is still his largest position. He dumped Best Buy completely.

David Einhorn wrote very favorably about Apple in May. But apparently the price appreciation or the recent business development at Apple has changed some of his views. This was what he wrote back in May:

None of our long portfolio investments have recovered with as much fanfare as AAPL, which surged from $405 to $600 per share in the quarter, bringing its P/E back to where it was at the end of 2010. Yet not everyone agrees that AAPL’s stock price is merely playing catch-up to its fundamentals. Some see the stock surge as a bubble, while others go so far as to mock that AAPL is its own asset class.Here are some of the common concerns we have heard:

1.Too many hedge funds own AAPL.

2. If AAPL’s share price doubles, it will have a $1 trillion market capitalization, and everyone knows there can be no such thing as a $1 trillion company.

3. Motorola, Research in Motion and Nokia were all market leaders that proved unable to hold onto their dominant positions and healthy margins; this too will be AAPL’s fate.

4. AAPL can’t possibly maintain its current hyper-growth trajectory.

Let’s address these one at a time:

1.Too many funds. It’s not clear what the objection is here. We suppose the worry is that there is a herd mentality among hedge funds, and that when one fund sells, there could be a cascade of hedge funds selling shares and the stock price will collapse.Moreover, if everyone already owns AAPL, who is left to buy it? Collectively, hedge funds currently hold less than 5% of AAPL’s outstanding shares, and no hedge fund ranks among the top 40 holders of the stock. The average hedge fund has less than 2% of its equity assets in AAPL versus AAPL’s 4% weighting in the S&P 500, which means hedge funds are actually underweight AAPL.

2. A trillion dollars? We’ve scoured the Nasdaq listing rules, reviewed the Securities Exchange Act of 1934, and engaged a leading numerologist. We can’t find any prohibition on trillion dollar market capitalizations.

3. All empires must fall. This concern, while not as arbitrary as the first two, reinforces our belief that the skeptics have a fundamental misunderstanding of AAPL. Their view suggests that AAPL is a hardware company. We disagree.

4. Growing pains. AAPL shares are not priced for growth. Its current valuation is justified without it.

The latter two concerns merit further discussion. Despite its size, AAPL remains one of the most misunderstood stocks in the market. AAPL is a software company. The value comes from iOS, the App store, iTunes and iCloud. A Motorola RAZR phone was a one-time winner because when someone else made a phone that was just a little better, RAZR sales stopped. In contrast, a consumer with one AAPL product tends to want more AAPL products. Once the user has a second device, AAPL has captured the customer. At that point, a future competitor has to make a product that isn’t just a little better, but a lot better to get people to switch. The high switching cost makes AAPL’s business much more defensible than that of its predecessors.

Further, AAPL’s ability to consistently offer innovative features (as opposed to marginal improvements on the current features) encourages users to upgrade every couple of years.This provides a recurring revenue stream. And because AAPL embeds its software into itshardware, it doesn’t face Microsoft’s piracy problem. If the Chinese want AAPL, they haveto buy AAPL. Rather than view AAPL as a hardware company, we see it as a software company that monetizes its value through the repeated sales of high margin hardware.

We continue to hold AAPL. Not only do we think the skeptics are misguided, we believe the shares remain cheap. AAPL trades at a lower multiple than the average company in the S&P500. A below-market multiple implies that this is a below-average company. We have a hard time seeing how anyone ranks AAPL as below average.

As of 09/30/2012, Einhorn’s firm Greenlight Capital owns 39 stocks with a total value of $6 billion. These are the details of the buys and sells.

This is the portfolio chart of David Einhorn. You can click on the legend of the chart to show/hide buys, sells, or holdings. Each ball on the chart represents a position in the portfolio. You can move your mouse on the balls to see the details of each position and click to see the details of all guru trades with this position.

David Einhorn initiated holdings in Yahoo! Inc. His purchase prices were between $14.65 and $16.23, with an estimated average price of $15.6. The impact to his portfolio due to this purchase was 1.3%. His holdings were 5,050,000 shares as of 09/30/2012. Yahoo! Inc. is a global Internet communications, commerce and media company that offers a comprehensive branded network of services. Yahoo! Inc has a market cap of $20.46 billion; its shares were traded at around $17.84 with a P/E ratio of 15.6 and P/S ratio of 4.1.

New Purchase: Babcock & Wilcox Co (BWC)

David Einhorn initiated holdings in Babcock & Wilcox Co. His purchase prices were between $24.01 and $26.99, with an estimated average price of $25.32. The impact to his portfolio due to this purchase was 0.37%. His holdings were 860,446 shares as of 09/30/2012. The Babcock & Wilcox Company delivers advanced engineering, manufacturing and construction solutions to meet global energy demands. Babcock & Wilcox Co has a market cap of $2.78 billion; its shares were traded at around $23.71 with a P/E ratio of 13.6 and P/S ratio of 0.9.

New Purchase: Aecom Technology Corporation (ACM)

David Einhorn initiated holdings in Aecom Technology Corporation. His purchase prices were between $15.29 and $21.62, with an estimated average price of $18.35. The impact to his portfolio due to this purchase was 0.28%. His holdings were 782,704 shares as of 09/30/2012. AECOM Technology Corporation is a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental and energy. Aecom Technology Corporation has a market cap of $2.47 billion; its shares were traded at around $19.32 with a P/E ratio of 9.8 and P/S ratio of 0.3.

Sold Out: Unitedhealth Group Inc (UNH)

David Einhorn sold out his holdings in Unitedhealth Group Inc. His sale prices were between $51.07 and $58.48, with an estimated average price of $54.21. UnitedHealth Group Inc. offers health care coverage and related services to help people achieve improved health and well-being through all stages of life. Unitedhealth Group Inc has a market cap of $54.64 billion; its shares were traded at around $51.29 with a P/E ratio of 10.1 and P/S ratio of 0.5. The dividend yield of Unitedhealth Group Inc stocks is 1.6%. Unitedhealth Group Inc had an annual average earnings growth of 18.2% over the past 10 years. GuruFocus rated Unitedhealth Group Inc the business predictability rank of 3.5-star.

Sold Out: Carefusion Corp (CFN)

David Einhorn sold out his holdings in Carefusion Corp. His sale prices were between $24.01 and $28.63, with an estimated average price of $26.09. CareFusion is a global corporation serving the health care industry with products and services that help hospitals measurably improve the safety and quality of care. Carefusion Corp has a market cap of $6 billion; its shares were traded at around $26.73 with a P/E ratio of 15.3 and P/S ratio of 1.7.

Sold Out: Hess Corp (HES)

David Einhorn sold out his holdings in Hess Corp. His sale prices were between $42.31 and $56.07, with an estimated average price of $48.79. Hess Corporation, is a global integrated energy company engaged in the exploration for and the production, purchase, transportation and sale of crude oil and natural gas, as well as the production and sale of refined petroleum products, electricity. Hess Corp has a market cap of $17.32 billion; its shares were traded at around $49.64 with a P/E ratio of 12 and P/S ratio of 0.5. The dividend yield of Hess Corp stocks is 0.8%. Hess Corp had an annual average earnings growth of 7.2% over the past 10 years.

Sold Out: Expedia, Inc. (EXPE)

David Einhorn sold out his holdings in Expedia, Inc.. His sale prices were between $44.04 and $59.39, with an estimated average price of $52.19. Expedia, Inc. is one of the world's travel services companies. Expedia, Inc. has a market cap of $7.79 billion; its shares were traded at around $55.79 with a P/E ratio of 21.3 and P/S ratio of 2.3. The dividend yield of Expedia, Inc. stocks is 0.9%. Expedia, Inc. had an annual average earnings growth of 4.1% over the past 5 years.

David Einhorn sold out his holdings in Best Buy Co Inc. His sale prices were between $16.94 and $22.62, with an estimated average price of $18.81. Best Buy operates in a single business segment, selling personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories principally through its retail stores. Best Buy Co Inc has a market cap of $5.15 billion; its shares were traded at around $15.33 with a P/E ratio of 4.3 and P/S ratio of 0.1. The dividend yield of Best Buy Co Inc stocks is 4.4%. Best Buy Co Inc had an annual average earnings growth of 13.9% over the past 10 years. GuruFocus rated Best Buy Co Inc the business predictability rank of 5-star.

Sold Out: Compuware Corporation (CPWR)

David Einhorn sold out his holdings in Compuware Corporation. His sale prices were between $8.63 and $10.2, with an estimated average price of $9.53. Compuware Corporation provides business value through software and professional services that optimize productivity and reduce costs across the application life cycle. Compuware Corporation has a market cap of $1.89 billion; its shares were traded at around $8.62 with a P/E ratio of 27.4 and P/S ratio of 1.9. Compuware Corporation had an annual average earnings growth of 11% over the past 10 years.

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